On Saturday morning October 13 at the Skirball Center, our team of Profs from Pepperdine University, Davide Accomazzo, Clemens Kownatzki, Terry Ing and Chirs Manfre’, battled it out in an interesting debate on the merits of strategies that try to time the market versus more passive approaches that require patience and constant exposure.
The issue, unsurprisingly, wasn’t settled as Mr. Market rarely provides clear cut, black and white solutions. Ultimately, the differences among the panelists were more about the right approach for each investor, as each one of us has unique contingencies and resources, and about degrees of activism.
One distinction that was made clear is an active or passive approach in equity selection versus a static or tactical approach in asset allocation. This issue is often blurred in conversations and analysis and yet it is paramount in proper portfolio construction. This conversation led the panel toward discussions of micro versus macro inefficiencies. In other words, could investors identify more recurrent and more tradeable inefficiencies in major market moves or in stock picking action? The panel was split on this issue once again showing that the investment process is very idiosyncratic and while it responds to certain general rules, the details that are specific to an investor may make the most significant difference.
In favor of time in the market and passive exposure, Prof. Kownatzki showed some Standard and Poor’s stats on widespread underperformance of active managers. The panelists debated whether the results were skewed by recent data that showed a strong momentum driven market, a situation usually negative for most active managers, especially for Hedge Fund managers, and if we should expect better performance from the active group going forward. Prof. Accomazzo indicated how active managers in recent months have started to outperform and Prof. Ing also stressed that in the Hedge Fund space more volatility should ultimately translate into better results. Prof. Manfre’ also pointed out Merger Arbitrage strategies as outperformers in late cycle periods.
One point of agreement was that proper research should eventually make a difference but that not everyone may have the resources (time and access) to execute and therefore for most investors a passive approach might still be a better option.
Feel free to contact us should you want to get in touch with any of our four panelists for more analysis.